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Signs of fatigue or… - Views on News from Equitymaster
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  • Aug 20, 2005

    Signs of fatigue or…

    ...the bulls are gasping for breath before they start their run again? Well, this continues to remain the million-dollar question. However, despite the (largely) subdued and rather volatile action on the bourses in this holiday-shortened week, the Sensex managed to close higher than last week’s close. This thus makes it the 16th straight week of gains for the Sensex. Taking into consideration this week’s gains, the Sensex (up 0.2%) has now gained almost 24% in the last 16 weeks, while the Nifty (up 0.9%) is up by 23%. The CNX Mid-cap Index also ended the week in the positive with 0.6% gains.

    The action on the bourses this week was (again) relatively tepid when compared to the strong rally that has materialised on the bourses since May 2005. We say again because even last week, the Indian indices were rather flat with mere 0.2% gains. Further, while the benchmark indices may have not moved much on a weekly basis, there was significant intra-day volatility that has kept investors on their toes in the last fortnight.

    The markets began this week on Tuesday (Monday being a holiday on account of Independence Day) on a strong footing but selling pressure at higher levels saw them lose all their gains by the close of the trading session. Wednesday saw the bulls get back in action as Indian stockmarkets soared to new heights and closed at their lifetime highs. However, the following two days saw the re-emergence of profit booking as repeated attempts by the bulls to bring the market out of the troughs were met with strong selling pressure at higher levels, giving rise to sharp volatile moves. Amongst all this, the institutional players i.e. FIIs and domestic MFs were both largely on the sidelines as can be seen in the chart above.

    Top gainers over the week (NSE-50)
    Company Price on
    Aug 12 (Rs)
    Price on
    Aug 19 (Rs)
    H/L (Rs)
    BSE-SENSEX 7,754 7,781 0.3% 7,921 / 5,022
    S&P CNX NIFTY 2,361 2,383 0.9% 2,427 / 1,574
    ACC 446 471 5.6% 476 / 247
    ONGC 951 1,000 5.2% 1,034 / 682
    TATA TEA 789 824 4.4% 860 / 381
    SHIP. CORP. 149 154 3.4% 188 / 114
    TCS 1,283 1,325 3.3% 1,475 / 959

    Now let us consider some sector/stock specific developments this week:

    • Cement sector has been witnessing buying interest since the last few weeks on the back of strong earnings expectations as demand for cement remains strong. Cement manufacturers have been running at almost full capacity in recent times driven by the boom in housing sector and robust industrial activity. This was reflected in the healthy 1QFY06 earnings numbers. Further aiding sentiments towards the sector is the fact that since not much of capacity addition is expected in the near future, price realizations are expected to remain firm. All of this has led to strong buying interest in cement stocks with ACC (up 6%) being the top gainer amongst the index stocks. However, the real action was in the smaller cement companies’ stocks. Other cement stocks

    • ONGC (up 5%) was another big gainer amongst index stocks this week. While record high crude prices would have aided sentiments, the news that the company would be able to restore 70% of its production lost in the recent Bombay High fire by the end of August 2005 seems to have come as a relief for investors. Also, the company, along with LN Mittal, has bid for an oil and gas company in Kazakhstan. It must be recollected here that the these oil and steel majors respectively had floated two joint venture companies last month for acquiring oil and gas companies in the Africa and Asian countries. The JV is also on a hunt for related businesses like refining, petrochemicals, pipelines, LNG, shipping and energy trading. Other energy stocks

    • In another energy news, IOC has approached the petroleum ministry with a proposal to increase petrol and diesel prices by as much as Rs 5.29 and Rs 4.54 respectively to meet the under-recoveries. The government, on the other hand, has indicted that petrol and diesel prices would be raised by Rs 3.25 and Rs 4 per litre respectively, but with oil prices hitting the roof, oil-marketing companies continue to bleed even after considering the recent hike in petrol/diesel prices. The basket price of crude for Indian companies touched a record high of US$ 61.6 a barrel on Monday as international crude oil prices breached the US$ 67 per barrel mark, which would further pressurise oil marketing companies' margins. Other energy stocks

      Top losers over the week (NSE-50)
      Company Price on
      Aug 12 (Rs)
      Price on
      Aug 19 (Rs)
      H/L (Rs)
      DABUR 158 150 -4.6% 162 / 66
      GLAXO 912 878 -3.7% 925 / 583
      ORIENTAL BANK 273 264 -3.2% 382 / 216
      SATYAM 527 511 -3.0% 555 / 333
      ICICI BANK 513 498 -2.8% 555 / 260

    • Steel sector ended mixed this week despite the news that domestic steel prices would increase by around 7% September 2005 onwards. The primary reasons for the increase have been falling inventories and buoyant industrial production, apart from the recovery in international steel prices. It must be noted that steel prices had collapsed by about 25% to 30% in early 2005 on the back of a huge build up in global steel inventory. While the news of price hikes is good for Indian steel manufacturers, players who have a relatively larger proportion of sales on spot transaction basis would derive the benefits of this. For example, Tata Steel is largely insulated from the wild swings in steel prices as most of its sales are based on long term contracts.

    The bulls have now been riding the Indian stockmarkets for 16 consecutive weeks now. The steroid for them has been strong liquidity in the global markets, which has led to the incessant attraction towards Indian equities. In such times, while it is rather difficult to convincingly say that it is sheer liquidity that has been driving the markets, as fundamentals of India Inc. have been on the upturn, rich valuations of most of the index stocks and the madness being witnessed in the mid-cap and small-cap (especially penny stocks) paints a different picture. Thus, at this juncture, if an investor intends to make fresh investments in the stockmarkets, he has to bear in mind that there is very little or probably no margin of safety left to cushion his investments. Happy investing!



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    Aug 18, 2017 03:37 PM